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Monday, November 11, 2013

Race to Bottom Resumes as Central Bankers Ease Anew: Currencies

By Emma Charlton & John Detrixhe -
Nov 11, 2013 5:11 AM ET

The global currency wars are heating up again as central banks embark on a new round of easing to combat a slowdown in growth.
The
European Central Bank cut its key rate last week in a decision some
investors say was intended in part to curb the euro after it soared to
the strongest since 2011. The same day, Czech policy makers said they
were intervening in the currency market for the first time in 11 years
to weaken the koruna. New Zealand said it may delay rate increases to
temper its dollar, and Australia warned the Aussie is “uncomfortably
high.”

The moves threaten to spark a new
round in what Brazil Finance Minister Guido Mantega, seen here, in 2010
called a “currency war,” barely two months after the Group of 20
nations pledged to “refrain from competitive devaluation.”

“It’s a very real concern of these countries to keep their currencies weak,” Axel Merk,
who oversees about $450 million of foreign exchange as the head of Palo
Alto, California-based Merk Investments LLC, said in a Nov. 8 telephone
interview. ECB President Mario Draghi, “persistently since earlier this year, has been trying to talk down the euro,” Merk said.
With
the outlook for the global economy being downgraded by the
International Monetary Fund and inflation slowing to levels that may
hinder investment, countries and central banks are revisiting policies
that tend to boost competitiveness through weaker currencies.

Mantega’s ‘War’

The moves threaten to spark a new round in what Brazil Finance Minister Guido Mantega
in 2010 called a “currency war,” barely two months after the Group of
20 nations pledged to “refrain from competitive devaluation.”
“We’re seeing a new era of currency wars,” Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon in London, said in a Nov. 8 telephone interview.